What are Tokens?

THE SHORT ANSWER:

Tokens are tradable crypto assets that represent a certain unit of value.

THE SLIGHTLY LONGER ANSWER:

If you’re sitting there wondering what the difference between a “coin” and a “token” is, you’re not alone. It’s a little confusing. Let’s break it down.

Crypto coins, like Bitcoin or Litecoin, are built on their own blockchain. Thus: Bitcoin (BTC) is the native cryptocurrency of the Bitcoin blockchain. Pretty straightforward, right?

But crypto tokens, like USD Coin, Shiba Inu, or Chainlink, are built on another blockchain. For example: Chainlink (LINK) doesn’t have its own blockchain—instead, LINK tokens are built and issued through the Ethereum (ERC-20) blockchain.

This opens up a load of possibilities in the crypto space.

Let’s say you want to create your own cryptocurrency. Would you rather build a blockchain from the ground up? Or simply piggyback on an existing blockchain that has security mechanisms already in place?

One of those sounds a whole lot faster and cheaper, doesn’t it?

Or let’s say you want to create a stablecoin that’s tied to the value of a US dollar (see: USDC). Or a token that mirrors the price of a gram of gold (see: DGX). Or a token that you can redeem for 15 hours of streaming video service (see: LPT). All of these are made possible by tokenization.

It might help to compare crypto tokens to their physical counterpart. Let’s say you’re at the arcade with your buddies. To play the games, you can’t just stick your dollar bills into the machine—you have to trade those dollars for tokens that the machine will accept. These tokens have an established value at the arcade: one token gets you a round of Whack-A-Mole, four gets you a turn in the Star Wars Ultimate Battle Pod Experience.

Compare that to Chainlink, a popular Ethereum-based token. Chainlink gathers real-world data and delivers it to smart contracts on the Ethereum blockchain. That data doesn’t deliver itself—to get it, you have to pay the network operators in LINK tokens.

Tokens are simply a way to transact value across an established blockchain. They fuel decentralized finance, oracle services, governance programs, and many more. What tokens have you gotten your hands on?

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